In a significant development for Western Australia’s liquefied natural gas (LNG) sector, labour unions and Chevron [NYSE:CVX] have successfully negotiated a compromise agreement, bringing an end to over two weeks of work stoppages.
These disruptions posed a significant threat to the region’s LNG exports and helped push European gas prices by nearly 13% in the past week.
The Offshore Alliance, a coalition comprising the Australian Workers’ Union and the Maritime Union of Australia, announced that their members at Chevron had endorsed the recommendation presented by the Fair Work Commission during a late-night meeting with 350 of its members.
This decision signifies a crucial turning point in the ongoing labour dispute and should come at a welcome time for Europeans as pressure had mounted on gas prices as US gas flows dropped from its largest LNG plant.
Source: Tradingeconomics (European Gas Futures)
The dealmaker enters
The deal was reached following mediation talks overseen by the Fair Work Commission which was brought on by Chevron.
This last-minute agreement materialised just hours before a full bench sitting of the Fair Work Commission in Sydney.
Chevron had applied for a declaration of ‘intractable bargaining’ to compel arbitration by the Fair Work Commission for the dispute.
The claim by the US energy giant that the dispute was ‘intractable’ was considerably weakened by the compromise offer proposed by the mediator overseeing discussions.
It’s thought that Chevron was hoping that the commission would be able to force parties into an agreement under new laws that came into effect in June.
Chevron’s Wheatstone facility, a major player in Western Australia’s LNG exports, had already accepted the compromise proposed by Fair Work Commissioner Bernie Riordan on various contentious issues, including loading, travel allowances, overtime, and job security.
Chevron had also offered a remuneration package during mediation talks earlier in the week, which was subsequently accepted.
‘The Offshore Alliance will now work closely with Chevron to finalise the drafting of the three agreements, and members will soon cease their current industrial actions,’ the Alliance announced.
Alliance Union Secretary Brad Gandy elaborated on the agreement’s details, stating,
‘Commissioner Riordan’s recommendation includes substantial improvements in terms and conditions of employment, such as increased remuneration, enhanced job security, fixed rosters, career progression, and a return to a 40 percent roster.’
The protracted labour dispute had seen around 500 union members at Chevron’s Wheatstone offshore gas platform and the Wheatstone and Gorgon onshore LNG plants engage in work bans and sporadic stoppages for two weeks, with the action scheduled to continue until mid-October.
The ongoing dispute between Chevron and the unions has come at a backdrop of European natural gas futures rising above €38 as the northern hemisphere moves into cooler weather, increasing demand for heating and energy.
Wheatstone and Gorgon collectively account for approximately 7% of the world’s LNG supply.
Although Chevron reported no missed LNG cargoes due to the industrial action, the Offshore Alliance claimed on social media that volumes had decreased by 12% across the three Gorgon LNG trains on Barrow Island.
They also alleged that Chevron was compelled to flare gas at the Wheatstone plant.
This agreement aligns Chevron’s LNG facility management more closely with counterparts such as Woodside Energy, Shell, and Inpex Corporation, all of which have successfully negotiated union deals over the past year.
Outlook for WA’s gas fields and LNG Prices
Credit Suisse Energy analyst Saul Kavonic, who closely monitored the industrial dispute, anticipates that with union agreements now established across most of Western Australia’s offshore LNG plants, the region may experience a respite from industrial actions in the coming years.
‘The threat of strikes is now over, without a material impact on global gas supply occurring or a drop of domestic gas being lost,’ Kavonic remarked.
‘This draws to a close the saga whereby a few hundred workers in hi-vis overalls offshore WA brought European gas traders to their knees, causing tens of billions of dollars in market movements after threatening to disrupt around 10 percent of global LNG supply.’
While there has clearly been a seasonal uptick in demand, European forecasts are for a milder start to their colder months.
This should help relieve short-term pressure on prices, which should come under control in the coming weeks.
The other issue facing WA’s gas fields is an overall structural weakness in European industrial demand as an ongoing consequence of the energy crisis sparked by Russia’s war in Ukraine.
‘A number of industries have seen their business plan broken in a way,’ remarked Gergely Molnar, a natural gas analyst at the International Energy Agency.
An easing of gas prices ‘does not necessarily translate into a recovery in industrial gas demand,’ he said at an International Gas Union press briefing this week.
The clearest example of that has been Germany’s struggling industry, which had long relied on Moscow’s cheap natural gas to power its economy.
With Russia turning off the taps, Germany is now looking elsewhere for its gas as it struggles with electricity costs.
These higher costs have brought Germany’s industries to their knees.
So what happened?
Energy transitions are hard
As Europe’s largest economy, Germany has been known as an economic success story for much of the century.
Now that it has pushed heavily into a Net Zero agenda, the country is facing a reckoning.
Recent results have shown it is now the worst-performing major developed economy.
It closed down its three last nuclear power plants in April and has become a net energy importer after being an energy exporter for almost two decades.
Source: CNN
Clean energy projects have been slowed by extensive bureaucracy, which has pushed out costs and timelines for many of its major projects.
A €10 billion electrical line project to bring wind power from the north has seen costly delays and political resistance, which has seen its completion push from 2022 to 2028.
In the meantime, while Germany’s industry waits for cheaper energy prices, manufacturing has spluttered. GDP growth was revised down to -0.3% for the first half of the year.
It seems Germany has reclaimed its 1998 moniker as the ‘sick man of Europe’.
So, as we now turn our attention to Australia’s Net Zero transition— we can ask— are we next?
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If you want to learn more about how you can position yourself in the coming Net Zero changes and the potential U-turn governments will have to make, then…
Regards,
Fat Tail Commodities
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